Covid19 & Financial regulation in the "new normal"

As previously discussed, all FCA regulated firms need to have a business continuity plan and should have tested it regularly to ensure it is effective. However, as we get attuned to living in lockdown for a prolonged period of time, we all need to start evolving our thinking away from how firms will cope with doing their own business in a BCP scenario, to how they will ensure that they have appropriate safeguards and monitoring in place whilst they operate on such a remote basis.

Over the past couple of weeks, we have adopted (out of necessity) a short term way of thinking and looking at things born from the fragility of waking up of a morning and having no idea what the authorities or markets have in store for us (individually or as a nation). But, as working practices begin to get settled, it seems likely that we will all be working from home for a matter of months rather than days. 

The guidance and statements coming out from the FCA to date have been generally pragmatic and accepting that whilst firms still need to comply with their regulatory obligations. On its Covid page, the FCA is telling firms that it expects them to be checking they have sufficient capital and buffers to weather the current situation. "If a firm is concerned it will not be able to meet its capital requirements, or its debts as they fall due, they should contact their FCA supervisor with its plan for the immediate period ahead." In other words, you have a chance to deal with a potential issue now. We might not be so understanding later.

Firms should now be ensuring that issues such as monitoring and oversight are prioritised in this "new normal". It's one thing to be thinking about what oversight and monitoring systems, procedures and practices a business has in place to enable it to function in a short duration BCP situation. It is quite another thing where that BCP situation is more than a few hours or days. 

Based on the FCA's statements, it is more likely than not that even though we may be seeing regulatory forbearance in the present, post-Covid we can expect the FCA (and other authorities) to review and investigate how firms have operated under current conditions. At a minimum, this will require firms to actually have records and data which they can review and use to demonstrate that they have met their obligations throughout. 

All FCA regulated firms need to be certain they are now operating with adequate supervision and control mechanisms in place. Firms should be carrying out reviews and gap analyses. It is unrealistic to think that firms are operating in exactly the same way at present as they have done in the past. With the change in landscape, there needs to be an assessment and maybe a change in approach to monitoring and supervision. And, if the results of such a review show that firms are facing issues meeting these challenges, now is the best time to work out how to best address such issues. It might be that changes need to be made internally. It might even be that now is a good time to seek to engage with the regulator to ensure their expectations are understood, but I think it unlikely that the FCA's forbearance will be infinite.